Is your cryptocurrency business struggling to get a fair deal on a merchant account – or even to be accepted? NMA can help. Read on for our expert view on the challenges you face and then get in touch for more information about how we reduce your risks and costs.
Most headlines focus on volatile changes in Bitcoin value, but it is the rise in usage among consumers that show the true potential of the crypto market. In Q3 2020, there were 54.27 million blockchain wallets, up 38% from the same period last year (Q3 2019 – 42.31 million wallets) and more than doubled from Q3 2018 (28.89 million).
Experts project the industry to grow at a 60.2% CAGR till 2025. Additionally, high-profile shops such as Whole Foods, Barnes & Noble, and Nordstrom can now accept cryptocurrency. This support makes it clear that cryptocurrency is likely to continue to experience continued increases in reach and popularity for the foreseeable future.
Why Are Cryptocurrency Companies Considered High-Risk By Banks and Credit Card Processors?
Banks and credit card processors view companies that rely on the buying and selling of cryptocurrencies to be very high risk. As an industry, cryptocurrency is highly unregulated compared to other financial sectors, which, coupled with the large volumes of money being moved, increases risk significantly.
Price volatility and a lack of understanding about how the industry works further increase the potential risk; credit card processors rarely work with industries where they do not understand the risk. In addition, while cryptocurrency is becoming increasingly mainstream, it still has not fully shaken off its early reputation as being connected with illegal activities such as money laundering or drug sales, and many banks see this as a “reputational risk”, meaning they don’t want to be associated with those perceptions.
For these reasons, plus the high rate of chargebacks and potential fraud, financial institutions view cryptocurrency businesses as very high risk. This may make it very difficult for you to get a cryptocurrency merchant account without help from experts.
How To Reduce Your Risk
While you can’t do much about the uncertainty surrounding crypto prices or the lack of industry regulation, you can put strategies into place to protect yourself from fraud and chargebacks by keeping thorough records of your transactions, saving receipts, and doing due diligence on new customers who want to purchase cryptocurrency.
With many new customers jumping aboard the crypto bandwagon, it’s also important you provide clear information for your customers and that they understand your terms of service and how their crypto purchase works. Clear communication will help prevent so-called “friendly fraud,” where a customer backs out of a transaction and claims a chargeback even though you have provided what they asked for.
Key points to keep in mind are:
- Communicate clearly all the risks associated with the transaction – your buyer must know that cryptocurrency can be a speculative venture, and that there is a significant risk of loss.
- Be cautious with marketing claims – while marketers always want to focus on the benefits and opportunities their product provides, especially with financial products it’s critical that you not oversell the opportunity or undersell the risk.
- Provide detailed and clear terms of engagement and ensure you properly capture your customer’s agreement with these terms. While it’s tempting to “hide” risks or drawbacks in complex legal language, this can expose you to greater risks of chargebacks.
- Be cautious of overzealous affiliate networks or other advertising methods where others might make exaggerated claims on behalf of your product.
- Pay careful attention to where you are reaching your customers – make sure that you are targeting customers who can afford to make speculative purchases and who are educated about their finances.
- Avoid offering undue leverage to your customers. As has been seen with consumer investment apps such as Robinhood, excessive leverage opportunities can lead inexperienced traders to make huge mistakes, which can ultimately lead to losses or legal risks for your business as well.
- Finally, you can further reduce your risk by working with a payment processor like NMA who understands your industry and can help you further reduce your risks.
How NMA Can Help You Manage Your Risk
Unlike a typical bank, we can help seemingly high-risk companies to manage their risk effectively through a combination of careful underwriting, relationship building, and ongoing monitoring. By taking care of the small details, we turn ‘high risk’ accounts into ‘managed risk.’
Together, our payment processing solutions and global network of strategic partnerships enable your cryptocurrency company to save money, reduce risk, and help you get funds deposited safer and quicker than with other competing solutions.